Ray Brescia (Albany) has posted a very interesting article on SSRN entitled The Cost of Inequality: Social
Distance, Predatory Conduct and the Financial Crisis, which will be published in an upcoming issue of the N.Y.U. Annual Survey of American Law. Those who attended the AALS Mid-Year Property meeting this summer will recall that Ray uses empirical data to try to understand the origins of the financial crisis in a fairly unique way, stressing the correlations between income inequality, trust, social capital, and delinquency rates.

I highly recommend this article. Ray's abstract is below:

Many have offered theories that attempt to
identify the causes of the present financial crisis. Some blame
deregulation
and a culture of greed on Wall Street. Others argue that lawmakers and
Presidents promoted homeownership too aggressively, sending mortgage
credit to
low-income communities to serve borrowers with poor credit and little
likelihood
of paying back their mortgage. Too often, these charges enjoy little
empirical
support. Taking a hard look at some of the economic indicators present
in the
buildup to the crisis, one fact stands out; prior to the crisis, the
U.S.
experienced a stunning increase in income inequality. This increase was
reminiscent of a time when the U.S. experienced a similar increase in
income
inequality: the years leading up to the Great Depression. Given this
phenomenon, this article explores empirically whether income inequality
itself
may have an impact on financial markets: asking whether such inequality
can
exacerbate, or even lead to, financial crises.

There are several possible explanations for the potential connection
between
rising income inequality and the great strains on the economy it causes.
Did
rising income for certain sectors lead to an ability to use that income
to
influence policymaking in such a way that favored those sectors? Did
such
income inequality pressure politicians to promote policies that favored
easy
access to credit as a way to mollify lower income constituents who might
otherwise grow frustrated with their own stagnating wages in the face of
such
inequality? These are the types of explanations that some have offered
to try
to explain the link between income inequality and the Great Recession.
In this
work, I both analyze these explanations, but also offer a third: that
both
income inequality and racial inequality created greater social distance
and
this social distance, in turn, led to greater predatory conduct. That
predatory
conduct turned a mortgage market into an economic killing field.

The review of the empirical information presented here uncovers critical
information that may reveal new insights into the potential causes of
the financial
crisis. First, differences in economic inequality within states
correspond to
differences in mortgage delinquency rates: i.e., the greater the income
inequality in a state, on average, the greater the delinquency rate in
that
state. Second, the greater the generalized trust in a state, the lower
that
state’s delinquency rate. Third, the higher the social capital in a
state, and the higher the level of volunteerism in a state, the lower
its
delinquency rate. Fourth, the higher the median income in a state, the
higher
the delinquency rate in that state. Fifth, an index of a series of
indicators
— income inequality within a state, the size of the African-American
population in a state and the median income of the African-American
population
in that state — reveals a strong correlation between these indicators
and
delinquency rates. This correlation suggests not that low-income
African-Americans are to blame for the foreclosure crisis, but, rather,
that
middle-class African-Americans were targeted for, and steered towards,
loans on
unfair terms, precipitating the foreclosures that are now concentrated
disproportionately in communities of color.

After a discussion of the empirical data that supports these
conclusions, this
article assesses the legislative and market forces presently at work
that are
attempting to rein in risky practices on Wall Street. First, I review
the
recently enacted Dodd-Frank financial reform legislation, analyzing to
what
extent it addresses social inequality. Second, I turn then to reform
efforts
with respect to modernization of the Community Reinvestment Act. Last, I
look
to market-driven and consumer-oriented efforts to reform financial
institutions, including the Move Your Money campaign, a consumer-led
boycott
designed to convince consumers and investors to utilize community-based
financial institutions.